Electric vehicle (EV) manufacturer NIO (NYSE: NIO) has been one of the best-performing stocks over the past few years. For example, the stock saw monumental gains in a Covid-struck 2020, rising over 1,000%.
However, 2022 has seen the share price plummet 60% as a compiling number of pressures have dented investor confidence surrounding the firm. In fact, since its all-time high back in January of last year, the stock is down a whopping 78%.
So, why has the NIO share price seen such a drop? And does this fall mean an opportunity for me to buy NIO shares? Let’s explore.
Why is the NIO share price down?
Well, the share price has seen a drastic drop for a few reasons.
Firstly, Covid cases in China are skyrocketing. As a result, cities such as Shanghai have entered extreme lockdowns. There are also concerns that similar rules may be applied to Beijing. For NIO, this has seen major disruptions to its supply chain as last month the business announced it had suspended production of vehicles. To counteract the fall in production, NIO increased the price of three of its SUVs. The share price fell 9% on the back of the news, reinforcing the lack of investor confidence surrounding the firm.
Secondly, NIO has seen a fall in price due to the possibility of its delisting from the US exchange. This is because the firm does not meet certain criteria for foreign stocks, most significantly on accounting issues and the Holding Foreign Companies Accountable Act. With delisting now a serious threat, the stock has dropped considerable amounts as a result.
Wider outlook
With this said, there are positives I see with NIO. As a long-term investor, short-term concerns such as supply chain issues do not worry me. NIO has already begun to speed up production again. And this is seen through the delivery of its new ET7 model. Should this continue, it should hopefully help get the business back on track.
Further, NIO has posted some impressive results in recent times. For its full year, revenues increased 122% year-on-year. While growth is expected to slow in 2022, this highlights the potential of the firm.
However, concerns such as competition deter me from buying NIO stock. As the EV space continues to grow, it may struggle with its plan for expansion. With more established manufacturers such as Volkswagen making moves in the sector, this could harm the market share NIO sees in the future.
Rising interest rates spell further bad news for it. In uncertain times like these, growth stocks tend to be hit the hardest. Hiking rates also make the debt it finds itself with more challenging to pay off. A continuation of this could see the NIO share price suffer.
What I’m doing
As much as the supply chain issues have impacted its share price, as a long-term investor this does not deter me from the stock. However, what does worry me is the growing threat of delisting. I think this, along with rising interest rates, could see the NIO share price fall further. As a result, I won’t be buying the shares today.
